OfficeMax and Office Depot merge

OfficeMax Inc. and Office Depot Inc. today announced the signing of a definitive merger agreement under which the companies would combine in an all-stock merger. Under the terms of the agreement, OfficeMax stockholders will receive 2.69 Office Depot common shares for each share of OfficeMax common stock.

The deal is expected to close by the end of calendar year 2013.

The merger makes the new entity an $18 billion company, based on projected 2012 sales, the companies said in a joint statement. The transaction has been approved by the board of directors of both companies.

The combined companies still trail Staples in e-commerce sales. Staples, No. 2 in the Internet Retailer Top 500, reported $10.6 billion in 2011 web sales, up by 3.9% from $10.2 billion in the prior year. Staples reported $25.02 billion in total sales for 2011, up by about 1.95% from $24.54 billion in 2010.

However, the combined company—its new name was not immediately revealed—would be the third-leading online retailer in North America based on 2011 sales, edging past previous No. 3 Apple, whose online sales totaled $6.66 billion in 2011, according to an Internet Retailer estimate.

The combined company will compete in a category that has moved the fastest to the web among the 15 major merchandise categories tracked by the Top 500 Guide. Office supplies retailers in the Top 500 accounted for 45.18% of all office supplies sales in 2011, the highest percentage of any category. Next came Books/Music/Video at 40.11%.

The new company’s North America online sales in 2011 totaled $6.7 billion after deducting $317 million in Office Depot’s European sales. That means the combined company represented 41.1% of total office supply company web sales of $16.30 billion, as reported in the 2012 Internet Retailer Top 500 Guide.

Both Office Depot and OfficeMax have made significant investments in mobile commerce. Office Depot is No. 65 in the Internet Retailer Mobile 400, with 2012 m-commerce sales of $20.3 million, up 57.9% from $12.8 million in 2011, Internet Retailer estimates. The merchant offers an m-commerce web site, smartphone apps for iPhones and Android phones, and an iPad app that recreates the chain’s weekly ad. Consumers can use the smartphone app, built in-house, to browse, search and buy all products Office Depot sells. They can sign in to their Office Depot accounts and complete transactions within the app. Items placed in the cart in the app when a customer is signed in will also appear in the carts on the m-commerce and e-commerce sites so customers have the option to purchase them later in a different manner.

OfficeMax is No. 99 in the Internet Retailer Mobile 400, with 2012 m-commerce sales of $11.0 million, up 53.9% from $7.1 million in 2011, Internet Retailer estimates. OfficeMax offers the full gamut of mobile shopping options, including an m-commerce web site, smartphone apps for iPhones and Android phones, and an iPad app. OfficeMax is ahead of the curve in mobile payments, having invested in Near Field Commnication checkout terminal technology so it can accept Google Wallet at select stores. Google Wallet is a smartphone-based payment, loyalty and offers scheme from Google Inc. OfficeMax also offers an app dubbed Mobile Print Center that enables customers with iPhones or Android phones to retrieve documents or images attached to e-mails, in the Google Docs program or on their phones, and schedule them for printing and pickup at an OfficeMax print center. Customers can choose paper size and type, color, binding and other features and also pick out the store location.

The new entity will have a significant presence on social media site Facebook, with a total of about 700,000 fans as of today. It has another 40,000 combined Twitter followers. Both merchants are active on YouTube, as Office Depot has more than 330 subscribers and nearly two million video views. OfficeMax has 200 YouTube subscribers and nearly 375,000 total views. OfficeMax also has 63 followers on Pinterest, while Office Depot has 492.

According to web traffic measurement firm Compete Inc., OfficeMax received 1.4% of its 2012 site traffic directly from Facebook, while Office Depot received 1.3%.

The new company will form a selection committee of new board members to oversee the search process for naming the CEO for the combined company. Both incumbent CEOs, as well as external candidates, will be considered in the search process. Neil Austrian, chairman and CEO of Office Depot, and Ravi Saligram, president and CEO of OfficeMax will remain in their current positions through the search process.

“In the past decade, with the growth of the internet, our industry has changed dramatically,” Austrian says. “Combining our two companies will enhance our ability to serve customers around the world, offer new opportunities for our employees, make us a more attractive partner to our vendors, and increase stockholder value.”

Saligram notes the companies can “build on our strong digital platforms and to expand our multichannel capabilities to better serve our customers and to compete more effectively. Importantly, this merger of equals transaction will provide stockholders of both companies with a compelling opportunity to participate in the long-term upside potential of the combined company.”

The merger doesn’t guarantee success, says Paula Rosenblum, an analyst at RSR Research LLC, a retail industry consulting firm. “The combined entity will have to dig down into the rank and file to shift the cultures, because the companies appear to be very resistant to change,” she says. “Perhaps then it can become more competitive. Right now they have very little to differentiate themselves.”

The merger is expected to deliver $400 million to $600 million in annual cost savings by the third year following the transaction’s close, the companies say.